Johannesburg - The Treasury has a good track record for sticking to its expenditure plans, according to Standard & Poor’s (S&P) South African head Konrad Reuss. But he told Business Report yesterday that the government’s record on structural reform was “mixed”. Three rating agencies cut South Africa’s sovereign rating one notch over the past year, citing concerns about spending and policy uncertainty.
Reuss’s comments on “implementation risk”, immediately after the medium-term budget policy statement on Wednesday, irritated Finance Minister Pravin Gordhan. According to Bloomberg, the minister said on Radio 702: “Konrad has a rather negative view on South Africa and I’m not sure why he lives here.”
Asked to elaborate on “implementation risk”, Reuss said: “See the long debate and delays around youth wage subsidy, e-tolls and the back and forth on tariff increases.”
He referred to the controversy within the ruling alliance over the National Development Plan (NDP), a long-term economic framework designed to lift economic growth. The plan has been welcomed by economists and by business but has met with opposition from the trade union movement.
“The statement [on Wednesday] focuses to a large degree on NDP implementation. But the jury is still out on consistent implementation,” he said.
The issues raised by Reuss highlight differences between Gordhan’s approach, on the one hand, and that of Economic Development Minister Ebrahim Patel and Trade and Industry Minister Rob Davies on the other. Both sides have produced plans, which are more interventionist in nature.
Gordhan, who has successfully steered the economy through the aftermath of the 2007/08 financial crisis and the global recession, is frustrated by rating agencies’ apparent failure to acknowledge the relative financial stability. While the debt of many advanced economies is equal to 100 percent to 200 percent of their gross domestic product, the debt ratio is about 40 percent.
However, Gordhan cannot achieve his objectives for the economy without the support of his cabinet colleagues and of the ANC’s alliance partners – unless the relationship between the partners is about to change. Sapa yesterday quoted Minister in the Presidency Collins Chabane saying the government would not bow to pressure from Cosatu, as departments and agencies were ready to implement the NDP.
Spokesman Patrick Craven was quoted by East Coast Radio praising Gordhan’s stringent measures to reduce spending throughout the government, including by cabinet ministers, but criticised the focus on the NDP.
And the National Education Health and Allied Workers Union expressed disappointment at the average annual real increase of 2.2 percent in non-interest public spending over the next three years, among other things.
Attempts yesterday to contact Craven and the Cosatu press office were unsuccessful.
Like Reuss, Nomura strategist Peter Montalto has reservations about Gordhan’s policy. He praised the “clamp down on excessive central government executive spending” and described the strong support of the NDP as a positive. But he cited, among other negatives, “no new specifics or budgeted allocations to support the NDP”. - Business Report
